UK Economic Growth Slows Down

Investing.com – UK economic growth slowed down dramatically in the third quarter, the first quarter in office for the new Labour government, causing the sixth largest economy in the world to contract in September.

Data released earlier Thursday by the Office for National Statistics showed that the UK economy grew by 0.1% in July-September, a sharp slowdown from the 0.5% growth recorded in April-June, and 0.7% in January-March.

The economy actually retreated in September, contracting by 0.1%, weakening from August’s meager 0.2% growth rate and providing the Bank of England (BoE) with more impetus to continue easing monetary policy.

The BoE cut interest rates earlier this month by 25 basis points, continuing a trend toward easing borrowing costs after rates reached a 16-year high, although the pace remains cautious.

Warnings about a likely tough budget ahead for the incoming Labour government affected sentiment during the quarter, with UK business confidence dropping to its lowest level since the general election.

Additionally, Bank of England Governor Andrew Bailey said in his annual Mansion House speech to financial services leaders in London that Brexit, which took effect in early 2020, had contributed to weakening Britain's trade flows and affected its economic productive capacity.

> "As a public official I take no position on Brexit per se. That's important. But I do have to point out consequences," Bailey said.

Looking ahead, analysts at Deutsche Bank expect Q4-24 GDP growth to pick up by 0.4% quarter-over-quarter, increasing the annual growth rate for 2024 to 1%.

However, they warn that risks are skewed lower, particularly due to budget uncertainties from potential tax rises, including employer National Insurance Contributions, alongside geopolitical risks from a possible escalation in a trade war. For now, GDP growth is projected at 1.5% next year, followed by an expansion of 1.6% the year after.